How could Malcolm Turnbull think beating the republican drum yesterday when tomorrow could reveal not only a debt blowout but a cut in Australia’s credit rating that puts us even deeper in trouble?

Turnbull’s frolic yesterday

MALCOLM Turnbull has called for a new road map on an Australian Republic with a two-stage national vote that includes a plebiscite first to allow voters to choose whether or not the new President will be elected by a popular vote…

Describing the question as an issue of “national pride’’ he proposed the two-stage process to allow voters to determine the model before Australians voted on a Republic at a second national vote.

Turnbull’s problem tomorrow, as noted by Judith Sloan, is the release of the mid-year economic and fiscal outlook:

This year’s MYEFO is more interesting than most because the rating agencies clearly are breathing down Scott Morrison’s neck. There is a strong possibility the agencies — Standard & Poor’s and Moody’s are the important ones — will downgrade the federal government’s much-prized AAA rating…

By far the most important consideration for the agencies are the budget numbers…

While it remains the case that our government net debt as a percentage of gross domestic product is still low by international standards, the rate of deterioration has been rapid. In 2009-10, net debt as a percentage of GDP was 3.3 per cent. This year it is 18.9 per cent.

If our rating is downgraded and there is a lift in rates, total net interest payments would increase noticeably. Even at this stage, it is costing us close to $13 billion a year to service the net debt…

Recall that [the September growth] figures showed a decline of 0.5 per cent in GDP in the September quarter, with annual GDP growing by 1.8 per cent annually…

The key figures to watch [in the MYEFO] are the underlying cash balances over the forward estimates. In the May budget, this (financial) year’s budget deficit was expected to be $37bn, falling through the forward estimates period to land on a small deficit of $6bn in 2019-20. A return to surplus was predicted to occur in 2020-21.

In all likelihood, this year’s budget deficit will come in slightly lower than the estimate made nearly eight months ago. The surging price of iron ore and coal should be feeding into higher company tax receipts and this will have a short-run impact on the budget bottom line. Mind you, weaker company profits in other sectors and other sources of revenue will be offsetting this impact…

Looking beyond the immediate outlook, the figures on revenue appear particularly murky. The underlying budget assumption of 5 per cent annual growth in nominal GDP from 2017-18 still looks too optimistic. Note that on the latest national account figures, nominal GDP is growing at only 3 per cent a year.

An economically inclined reader, Gavin Stevens, has dug even further into the budget projections, revealing some Pollyanna figures when it comes to the anticipated revenues to be generated by individual tax measures. Take company tax. According to the budget, there will be a surge of company tax receipts in 2017-18 of 11.2 per cent, followed by 10.3 per cent the following year. Individual income tax receipts are expected to increase by between 6.4 per cent and 7.1 per cent a year between 2017-18 and 2019-20, which is hard to square with the present low rate of wages growth and the increasing incidence of underemployment in the labour market.

The point is that there is a high degree of optimism baked into the revenue figures in the budget and it is likely to be reasserted in MYEFO. If this optimism proves unfounded, the improvement in the bottom line that was an integral part of the May budget will not eventuate.

Millionaire Dick Smith is offering to help Pauline Hanson as she prepares One Nation for an electoral assault in Sydney.

Mr Smith, who set up his own company to produce Australian-made food products, will meet with Ms Hanson before Christmas, drawn to her immigration policies.

“I agree with her views on immigration numbers, that is about 70,000 a year, not 200,000. But I do not agree with her views on Muslim immigration,” he told News Corp Australia.

Mr Smith said he could see Ms Hanson gaining support across NSW, including in hard-core Liberal areas such as Sydney’s north shore.

“While I wouldn’t say I agreed with all of her policies, I am starting to see why she’s going to have incredible support and how completely disappointed people are with the two major parties,” he said.

But he ruled out financial support.

Meanwhile Ms Hanson confirmed One Nation would “definitely” be standing candidates in the next NSW and federal elections.

“I think there’s a move on across the country for One Nation,” she told News.

Senator Hanson said like many Australians, Dick Smith decided to listen to her ideas and look at her policies.